Tuesday, October 10th
5:45 PM Registration 6:00 PM Seminar Begins 7:30 PM Reception
House price appreciation (HPA) volatility has a term structure across time and geographic space. The HPA exhibits high short term positive correlation as well as a significant negative correlation over 5-7 years. The HPA term structure volatility model proposed here has the following advantages: 1) analytically tractable 2) parsimonious with only 3 parameters 3) model is time continuous instead of discrete as many econometric models use quarterly time step. 4) model provides a vigorous framework for pricing of credit sensitive MBS securities.
Apply this model to Economical Risk Capital (ERC) for mortgages and real estate, we show it provides a countercyclical capital framework. Currently many financial institutions and regulatory agencies use a worst HPA history, hence an “unconditional distribution” framework for capital and stress tests purpose. The countercyclical framework we proposed is superior to the “unconditional distribution” framework in terms accurate risk modeling, adequate and responsive capital model, macroeconomic and policy consideration.
Biography
Dr. David Zhang is a Managing Director and Head of Securitized Products Research at MSCI. His team is responsible for developing models and analytics to support investment analysis, risk management, and regulatory compliance.
Before joining MSCI, Dr. Zhang was Managing Director and head of Securitized Products modeling at Credit Suisse for more than a decade. At Credit Suisse he was responsible for supporting risk, regulatory and client analytics as well as sales/trading quantitative strategies. Dr. Zhang’s group developed one of the most widely used MBS models by fixed income institutional investors. Their work was consistently awarded top ranking by various industry and client surveys, including Institutional Investor All-America Research Team ranking in Agency prepayment. They also won the award for best paper by the American Real Estate Society for research on effectiveness of government mortgage programs.
The regulatory projects Dr. Zhang lead at Credit Suisse included developing models for CCAR and PPNR (Pre-Provision Net revenue), Dodd-Frank IHC (Intermediate Holding Company) and related VaR, RWA and RBPL modeling, and FRTB (Fundamental Review of Trading Book).
Prior to Credit Suisse, Dr. Zhang worked at FreddieMac, CIBC Oppenheimer, and University of Chicago. He holds leadership positions at PRMIA (Professional Risk Management International Association) and GCREC (Global Chinese Real Estate Congress). He is a frequent speaker at industry and academic conferences, and his research on risk, financial modeling and real estate has been published in many academic journals. Dr. Zhang has a Ph.D. from Princeton University.
About the Series
The IAQF's Thalesians Seminar Series is a joint effort on the part of the IAQF (www.iaqf.org) and the Thalesians (www.thalesians.com). The goal of the series is to provide a forum for the exchange of new ideas and results related to the field of quantitative finance. This goal is accomplished by hosting seminars where leading practitioners and academics present new work, and following the seminars with a reception to facilitate further interaction and discussion.